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Refi math question
Old 08-20-2010, 09:56 AM   #1
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Refi math question

I know this is a math question and Ive done the math but I'm not all that confident in my math. Here's the situation:

We currently have a 10 year home equity loan at 4.99% with PenFed which we used to pay off our actual mortgage. We're 2 years into the 10 year loan. We plan to retire, sell this house and move out of state in June 2015 (4 years and 9 months).

The two loans I'm looking at are the PenFed 5/5 ARM at 4.0% and the 3/1 ARM at 3.0%.

With my current loan, in June 2015, I will still owe $38400

With the 5/5 ARM at 4.0%, my payments drop from $1094 to $412. If I apply the additional $682 monthly to the mortgage, in June 2015 I will still owe $35000

With the 3/1 ARM at 3.0%, my monthly payments drop from $1094 to $365. If I apply the additional $$729 monthly to my mortgage, in June 2015 I will still owe $31800. Of course with the 3/1 ARM, the rate will probably rise after the 3 years. If it rises to the max 5%, my payments would go up about $95. I'm not sure how to calculate the payoff with payments going up in the middle of the loan so I did an estimate. If I subtract $100 per month (for 21 months) from the amount I add to the payments to account for the higher payment when the rate goes up, I end up owing $32900 in June 2015.

If my math is close, the 5/5 ARM saves me $3400 and the 3/1 ARM saves me $5500 (both mines whatever the fees are). This is a no brainer, correct?

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Old 08-20-2010, 05:27 PM   #2
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The amount of interest you will pay will also vary among the three, since they have different rates. That will probably tip the scales even further.

Try the Dr. Mortgage calculators recommended by Brewer (Or is it Prof. Mortgage?...I can't find the link right now).

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Old 08-21-2010, 11:37 AM   #3
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Dr Calculator

Perhaps this site?

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Old 08-22-2010, 07:07 AM   #4
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I like the mortgage professor's calculators (google him).

This looks like a more-or-less no brainer depending on your refi costs, but I would double check with the calculators. I personally went with the 5/5 because there is less risk in the loan if I stay here longer than expected and make lower prepayments than expected, but the 3/1 certainly is tempting.

There is also the "Easy Orange" mortgage at 3.375% for 5 years, but be aware that this is a balloon loan. For a small balance loan like yours, it might be worth considering.
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